Road to telecoms liberalization
By Winahyo Soekanto
DENPASAR (JP): Djamhari Sirat, who replaced Sasmito Dirdjo as director general of telecommunications in late January, is facing a great deal of homework in implementing the campaign to liberalize the telecommunications industry.
The outgoing official was responsible for some of the earlier liberalization measures, including the drawing up of Law No. 36/1999 on telecommunications, but much has yet to be done.
The new director general, who holds a PhD in microprocessor application from a United States university, is an expert in telecommunications technology and should thus be fully aware of the imperative of consistent policies to attract investment.
The new director general must respond to the parallel rapid growth of telecommunications and information technology and increasing demands for independent, procompetition regulatory bodies.
Telecommunications regulatory bodies in Singapore, Hong Kong and Australia have been commended by telecommunications and informatics industry players because of licensing policies that favor transparency, regulations that also encourage competition, and because of good services to the industry players.
The need for an independent regulatory body in Indonesia has even been recognized by the International Monetary Fund in its economic reform prescription for Indonesia.
The Directorate General for Post and telecommunications and the Ministry of Transportation and Telecommunications, as the state regulatory body, have displayed an intent to meet demands for an independent regulatory body, but various problems are hampering the campaign.
The liberalization process actually started in Indonesia in 1996 when state telecom company PT Telkom, as the incumbent monopoly power in the industry, invited investments through joint operation schemes (KSO), the construction of fixed lines and the licensing of cellular operators.
Before the 1997 economic crisis, Indonesia was able to attract the attention of investors to enter its telecommunications industry. When the economic crash turned into a multidimensional crisis, however, those investors pulled out.
Even so, the existing growth propelled by Telkom's KSO projects and that maintained by the existing cellular operators are a sign of how dynamic the industry is.
Of special note is the growth of prepaid services for cellular telephone users to keep their costs under control, and which also serves as the second line for the operator companies themselves.
Meanwhile, the government continues its struggle to build the necessary legal infrastructure to keep up with the rapid developments in the telecommunications industry, to make it more liberal and open.
Law No. 36/1999 stipulates a one year transition period before it goes into effect. The year passed without the government having produced adequate directive guidelines; during that period the regulations issued included Government Regulation No. 52/2000 on telecommunications management and No. 53/2000 on the use of radio frequency spectrum and satellite orbits.
Many necessary regulations are yet to be legislated. One cannot help but question whether our legislators drafting the above law had not thought about the required accompanying directives.
What regulations are still missing? This list is not exhaustive but should give a general idea about the poor legal infrastructure in our telecommunications industry: regulations on new licensing for cellular operators and a review of existing licensing procedures, on interconnection of networks, on tariffs, on security of telecommunications and safety and privacy measures.
Prolonged absence of such regulations would slow down reform in this sector, given the speed with which the industry grows and the technology develops.
Despite the crisis last year both PT Telkom and cellular operators were still committed to expansion.
The government, the industry regulator, must race against time and accommodate the companies' drive forward by drafting favorable policies and regulations.
There are myriad ways by which the government could gradually approach market liberalization. It could start with facilitating competition in mobile telecommunications and value-added services, before commencing with campaigns to promote competition in basic services. South Africa chose this approach in 1994.
Other countries chose to introduce a "duopoly" in the sector, before ushering in open competition: the UK took this route in 1982 before launching full domestic competition in 1991 and for international services in 1996.
Some countries such as Switzerland applied monopoly before jumping straight into full competition for all services.
Indonesia has made a step in the right direction by first introducing competition in the mobile telecommunication industry; it has also planned to end the monopoly of basic services in 2003 or 2004 and compensate the incumbent monopoly holder with mobile cellular licensing and fixed-line services.
The accelerated pace with which the government is ending the monopoly, however, is also causing a burden, such as indicated by the termination of joint operating schemes between Telkom and its partners.
This situation is adversely affecting the plan to restructure Telkom, which is crucial for the industry's reform and liberalization. The delayed restructuring of the monopoly holder is also adversely affecting the flow of new investments.
Over the past few months PT Telkom has been insistent in its campaign to acquire PT Indosat. Telkom officials and proponents of the acquisition argued that once the value of the two companies soared when the government launched its advance privatization program, the state coffers would really get filled up.
But Indosat has been fighting the notion tooth and nail, launching every possible move to prevent merger including signing new ventures, purchasing new businesses abroad, and planning to issue bonds, which would all mean additional burdens for Telkom should it succeed in its merger campaign.
Officials of both companies have also been intensifying campaigns to garner support from various bodies including from the House of Representatives.
What comes across to the public is that Telkom has been neglecting its homework -- including the problem of termination of joint operating schemes -- because it is too preoccupied with the acquisition plan.
Telkom's above preoccupation possibly stems from a conviction that a merger of Telkom and Indosat would solve a number of problems concerning the joint operating schemes, some problems of cross-ownership between the two companies, and would increase their value for the government.
But many have also observed that the campaign was a sign of Telkom's defense against losing its monopoly rights as well as fears of free competition.
Yet Telkom's fears of losing out to competition are unfounded. Its customer base of fixed lines consists of over seven million customers inside and outside the joint operating schemes; it also has shares in healthy companies such as Telkomsel, Lintas, Artha and Satelindo.
Telkom is therefore most prepared for open competition with anyone including its "stepsister" Indosat.
No less strange are the indecisive-sounding statements of the Minister of Telecommunications. Had he been consistent with the telecommunications industry's blueprint for development and with Law No. 36/1999, he would have made it clear from the start that a merger of Telkom and Indosat would be against their procompetition policy.
One cannot help but wonder whether these institutions are the right ones to liberalize the industry and encourage procompetition.
The writer is a lawyer based in Denpasar and an observer of the telecommunications industry.